We are still in an overall bull market and many stocks that smart money investors were piling into surged through November 22nd. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 52% and 49% respectively. Hedge funds' top 3 stock picks returned 39.1% this year and beat the S&P 500 ETFs by nearly 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Pacific Ethanol Inc (NASDAQ:PEIX).
Is Pacific Ethanol Inc (NASDAQ:PEIX) going to take off soon? The best stock pickers are becoming less hopeful. The number of bullish hedge fund bets retreated by 1 lately. Our calculations also showed that PEIX isn't among the 30 most popular stocks among hedge funds.
In the financial world there are tons of methods investors employ to appraise publicly traded companies. Some of the most under-the-radar methods are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the top picks of the best money managers can outclass the S&P 500 by a healthy amount (see the details here).
[caption id="attachment_26794" align="aligncenter" width="359"] Paul Tudor Jones of Tudor Investment Corp[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a peek at the new hedge fund action regarding Pacific Ethanol Inc (NASDAQ:PEIX).
How are hedge funds trading Pacific Ethanol Inc (NASDAQ:PEIX)?
At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards PEIX over the last 17 quarters. With hedgies' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Pacific Ethanol Inc (NASDAQ:PEIX), with a stake worth $1.4 million reported as of the end of September. Trailing Renaissance Technologies was Solas Capital Management, which amassed a stake valued at $0.3 million. Citadel Investment Group was also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Solas Capital Management allocated the biggest weight to Pacific Ethanol Inc (NASDAQ:PEIX), around 0.32% of its portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.0012 percent of its 13F equity portfolio to PEIX.
Since Pacific Ethanol Inc (NASDAQ:PEIX) has experienced falling interest from hedge fund managers, it's safe to say that there were a few fund managers who were dropping their full holdings heading into Q4. At the top of the heap, Ken Griffin's Citadel Investment Group sold off the largest investment of the "upper crust" of funds tracked by Insider Monkey, totaling an estimated $0 million in stock, and John A. Levin's Levin Capital Strategies was right behind this move, as the fund cut about $0 million worth. These moves are interesting, as aggregate hedge fund interest fell by 1 funds heading into Q4.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Pacific Ethanol Inc (NASDAQ:PEIX) but similarly valued. These stocks are Aerpio Pharmaceuticals, Inc. (NASDAQ:ARPO), ContraFect Corporation (NASDAQ:CFRX), Zafgen Inc (NASDAQ:ZFGN), and Bio-Path Holdings, Inc. (NASDAQ:BPTH). This group of stocks' market values match PEIX's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ARPO,3,3654,1 CFRX,6,3054,-1 ZFGN,12,8736,-2 BPTH,1,444,-1 Average,5.5,3972,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.5 hedge funds with bullish positions and the average amount invested in these stocks was $4 million. That figure was $2 million in PEIX's case. Zafgen Inc (NASDAQ:ZFGN) is the most popular stock in this table. On the other hand Bio-Path Holdings, Inc. (NASDAQ:BPTH) is the least popular one with only 1 bullish hedge fund positions. Pacific Ethanol Inc (NASDAQ:PEIX) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately PEIX wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PEIX investors were disappointed as the stock returned -17.9% during the fourth quarter (through 11/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.